by E. Manning

Created on: June 12, 2008

On June 9, our Uncle Ben, venerable Federal Reserve chief, provided a note of honesty with a conference of buddies. He blithely admitted that he doesn't know it all, that the Fed doesn't know it all and that he needs the opinions of others in the field. That has to be pretty refreshing. Knowing that Uncle Ben struggles at anything is a wonder to consider. "In the spirit of this conference, my remarks this evening will highlight some key areas where additional research could help to provide a still-firmer foundation for monetary policymaking." Hey babe, that is as close as you are going to get for an admission of fallibility.

He has changed his tune about the recovery of the U.S. economy to a more realistic model. "Over the remainder of 2008, the effects of monetary and fiscal stimulus, a gradual ebbing of the drag from residential construction, further progress in the repair of financial and credit markets, and still-solid demand from abroad should provide some offset to the headwinds that still face the economy." This isn't going to be a one-quarter gas attack any more.

"Inflation has remained high, largely reflecting sharp increases in the prices of globally traded commodities." Uncle Benny, it just can't be! Inflation is high at 3%? How is 3% inflation today higher than 3% inflation a year ago or thirty years ago? Now the collective economy knows that Uncle Benny and his cohorts have been handing us a zinger for the last thirty years about the eternal 3% inflation rate.

What's more, he's decided that globally traded commodities are to blame for high prices. For anyone that knows what he is talking about, the admission is stunning and revolutionary. Well, perhaps only to the less ingeniously-minded. The brains of America have began to pick up on the gross corporate and investor profit-taking that has magically and mysteriously appeared on the scene, almost as if by divination.

Uncle Ben is more than comforting in his analysis. The FOMC (that's the Federal Open Market Committee to you) will strongly resist an erosion of longer-term inflation expectations. Are you happy to have someone so determined at the helm? "Economists within the Federal Reserve System and at other central banks have made and will continue to make important contributions in these areas." It almost takes your breath away.

Now the good news of recognition comes to play. "Rapidly rising prices for globally traded commodities have been the major source of the relatively high rates of inflation

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